Third time lucky as Aveva agrees £3 billion software deal with Schneider

LONDON (Reuters) - France’s Schneider Electric will take a 60 percent stake in an enlarged industrial software business worth about 3 billion pounds after agreeing to combine with Britain’s Aveva Group at the third time of asking.

Jean-Pascal Tricoire, chairman and CEO of Schneider Electric, said the combined company would be better placed to serve a wide range of industries and its enhanced capacity would also benefit investors.

Completion of the deal, due around the end of the year, will mark the end of independence for the last $1 billion-plus tech company founded in the English university city of Cambridge, an area known as “Silicon Fen”.

The British company’s chief executive James Kidd said he was confident the merger would get over the line this time after two failed attempts to do a deal since 2015.

“We are in a much further progressed position than we’ve been before; we’ve signed a binding merger agreement with Schneider,” he said in an interview.

Aveva’s products are used to design and manage oil rigs, ships and chemical plants, while the French multinational spans electrical components, energy management and industrial automation systems.

The tie-up will create a global leader in engineering and industrial software with combined revenue of around 657.5 million pounds ($856.5 million) and adjusted earnings of 145.8 million pounds this year, the companies said.

Kidd, who will be the interim chief executive of the combined group before taking the deputy CEO and CFO role, said the logic of the deal remained compelling.

It gave Aveva a bigger presence in sectors such as food and beverages and pharmaceuticals as well as in its strongholds in oil and gas, mining, and marine, he said.

“They have also got a substantial presence in the US, which has been one of our key strategic objectives for some time and this gives us a great platform,” he said.

Shares in Aveva, which have underperformed the FTSE 250 index by 21 percent in the last two years, soared 26 percent to 24.25 pounds at 1500 GMT.

Schneider Electric was little changed at 69.09 euros.

REVERSE TAKEOVER

Schneider will take a 60 percent stake in the enlarged group in a reverse takeover that will enable Aveva to retain its London listing.

Tricoire said Schneider had decided against a full takeover because he believed a dedicated software company had “its own DNA, its own culture, and own way of thinking”.

The merged group said it was in the process of seeking a new chief executive with experience of running a global software business.

The collapse of the first tie-up attempt was blamed by Aveva on the “highly complex structure of the proposed transaction” and worries about “significant integration challenges”.

Kidd said on Tuesday that Schneider had worked to separate its software assets ahead of the deal this time.

Under the terms of the deal, in return for ceding control, Aveva shareholders will receive 550 million pounds of cash, worth around 858 pence per share, from Schneider and another 100 million pounds, worth around 156 pence per share, of cash on Aveva’s balance sheet.

Analysts at Investec, who put their “hold” rating on Aveva under review, said the deal was “sensible” considering the strategic challenges Aveva faced.

“In absence of any bids being made by other potential suitors over the last couple of years, this seems like the best option for Aveva shareholders to help overcome the strategic growth challenges of being largely focused on the oil and gas market,” they said.

The deal, including the cash return, implied a total value for the shares of about 25-26 pounds, they said.

Analysts at Jefferies said the rationale looked reasonable, but the details were less convincing for shareholders in the French group.

“Aveva’s recent record is poor, with profits 30 percent below the 2014 peak and minimal growth,” they said.

“The deal also increases Schneider’s exposure to Oil & Gas capex,” they added, an area that has come under pressure as energy companies trim their budgets.